Long-term interest rates have risen in anticipation of rapid economic recovery (inflation) following large-scale stimulus measures and the start of vaccination

• In January, the 10-year US Treasury yield rose rapidly by maximum of 22bps. The Biden administration's announcement of a large-scale stimulus plan and also the start of vaccinations are both expected to recover employment in the service industry, which will lead to a faster-than-expected economic recovery.

• In addition, in terms of the supply of government bonds, the use of fiscal and monetary policies to cope with COVID-19 led to an increase in the issuance of government bonds, causing the price to decline.

The view that the base rate will sustain current levels until 2023 is dominant and the environment favorable to real assets is expected to continue 

due to financial market stability and inflation

• The Fed continues to give signals to the market that there will be no base rate adjustments for the time being, and both the Fed and market participants are expecting a base rate hike after 2023.

• The decreasing gap between the cap rate for commercial real estate and the 10-year government bond rate is expected to come from a decline in the cap rate due to inflation and a rise in the nominal interest rate to normalize real interest rates. However, the rise in nominal interest rates is not expected to be significant in the medium term as 1) the possibility of a base rate increase is low, and 2) it is difficult to increase the interest expense burden due to the increase in US government debt.

• As the financial market stabilizes, credit spreads are expected to fall and funding costs are anticipated to stabilize. Therefore, in addition to inflation on asset prices, the environment favorable to real assets is expected to continue.